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Philadelphia Indemnity Insurance Co. v. Providence Community Action Program, Inc.

United States District Court, D. Rhode Island

January 24, 2017



          WILLIAM E. SMITH, Chief Judge.

         Before this Court is a declaratory judgment action brought by Philadelphia Indemnity Insurance Company (“Plaintiff”) against Providence Community Action Program, Inc., Thomas Hemmendinger, Frank Corbishley, and William Bentley (collectively, “Defendants”). Plaintiff has filed a Motion for Summary Judgment, and Defendants have filed a Cross-Motion for Summary Judgment. The parties have lodged their respective objections. For the reasons set forth below, Plaintiff's Motion for Summary Judgment is DENIED, and Defendants' Cross-Motion for Summary Judgment is GRANTED.

         I. Summary Judgment Standard

         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56. Where, as here, there are cross-motions for summary judgment, this “simply require[s] [the Court] to determine whether either of the parties deserves judgment as a matter of law on facts that are not disputed.” Barnes v. Fleet Nat'l Bank, N.A., 370 F.3d 164, 170 (1st Cir. 2004) (quoting Wightman v. Springfield Terminal Ry., 100 F.3d 228, 230 (1st Cir. 1996)). Questions of law may be appropriately resolved on a motion for summary judgment. Littlefield v. Acadia Ins. Co., 392 F.3d 1, 6 (1st Cir. 2004). This includes questions regarding the construction of an unambiguous contract. See Lloyd's of London v. Pagan-Sanchez, 539 F.3d 19, 22 (1st Cir. 2008).

         II. Background[1]

         Providence Community Action Program, Inc. (“ProCAP”) is a non-profit corporation located in Rhode Island. In April of 2011, ProCAP purchased a directors and officers liability insurance policy (“D&O Policy” or “Policy”) from Philadelphia Indemnity Insurance Company (“PIIC”). Soon thereafter, ProCAP began experiencing financial difficulty and was forced into receivership. The temporary receivership order was signed by the Rhode Island Superior Court on December 14, 2011, appointing Thomas Hemmendinger (“Receiver” or “Hemmendinger”) as the Receiver. (Parties' Agreed Statement of Facts Ex. B, ECF No. 18-2.) That order was later amended on January 4, 2012, and Hemmendinger was appointed as the permanent Receiver. (Id. Ex. E, ECF No. 18-5.)

         The Rhode Island Superior Court's appointing order provides the Receiver various powers, including as follows:

The Receiver is hereby authorized to collect all the debts due the Defendant, to prosecute and defend, suits in its name or in the Receiver's name and capacity as Receiver or to intervene in any action, suit, or proceeding relative to the estate or effects of the Defendant . . . and generally do any other act which might be done by the Defendant or that may in the judgment of the Receiver be necessary or desirable for the protection, maintenance and preservation of the property and assets of the Defendant.

(Id. Ex. E ¶ 4, ECF No. 18-5.)

         Having been granted these powers, the Receiver brought a breach of fiduciary duty claim in Rhode Island Superior Court against two former[2] ProCAP officers, Frank Corbishley and William Bentley. The Receiver then sent a demand letter to PIIC for payment under the Policy. PIIC denied that claim, explaining that the Policy does not cover lawsuits brought by the Receiver “on behalf of” ProCAP. (Id. Ex. K, ECF No. 18-11.)

         The D&O Policy[3] purchased by ProCAP from PIIC is entitled “Flexi Plus Five.” (Compl. 36, ECF No. 1.) This sort of D&O liability policy is fairly common, and its purpose is to protect organizations against the wrongful acts of their management. To that end, Part 1 of the “Flexi Plus Five” Policy includes the following language: “The Underwriter will pay on behalf of the Organization, Loss from Claims made against the Organization during the Policy Period . . . for a D&O Wrongful Act.” (Id.)

         The Policy's broad coverage for all “wrongful act[s]” of directors and officers is subject to several exclusions. The relevant exclusion in this case states: “The Underwriter shall not be liable to make any payment for Loss in connection with any Claim made against the Insured . . . brought or maintained by, at the behest, or on behalf of the Organization.”[4] (Id. at 45-46.) The Policy defines “Organization” as the “Parent Organization” or “Any Subsidiary.” (Id. at 44.) However, the Policy provides no definition for the phrase “on behalf of.” After ProCAP went into receivership, the Policy was amended to include the Receiver (Hemmendinger) as a named party with coverage under the Policy. This amendment places the Receiver under the umbrella definition of an “Individual Insured” and labels him an “Independent Contractor.” (Id. at 11.) The amendment defines the term “Independent Contractor” as “an individual who is contracted to perform services for the Organization . . . .” (Id.) Of note, the amendment does not make any reference to the insured-versus-insured exclusion in the original Policy.

         III. Discussion

         A. ...

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